In an earlier publication (read here), we posited that, to further push the Nigerian economic recovery efforts, there is a need to step-up the contribution of off-grid renewable energy solutions to the much-needed electrification of Nigeria. We concluded by recommending the focused implementation of the various strategies and incentives articulated in the Nigerian Renewable Energy Policy of 2015.

Interestingly, the Federal Government of Nigeria (the “FGN”) has recently taken steps to deepen the use of renewable energy in Nigeria. Further to the Finance Act, 2019 (the “Finance Act”) which amended a number of provisions in extant tax laws, including the Value Added Tax (“VAT”) Act¹ (the “VAT Act”), the Honourable Minister of Finance, Budget and National Planning recently issued the Value Added Tax (Modification) Order, 2020 (the “VAT Order”) with a commencement date of 3 February 2020.

The VAT Order clarifies and expands the list of exempt items as contained in the First Schedule of the VAT Act. Notable amongst the items listed as being exempt from VAT are eight categories of renewable energy equipment, which are: (i) wind-powered generators; (ii) solar-powered generators; (iii) solar cells, whether or not in modules or made into panels; (iv) other photosensitive semiconductor devices; (v) solar DC generators of an output not exceeding 750W: (vi) solar DC generators of an output exceeding 750W but not exceeding 75kW; (vii) solar DC generators of an output exceeding 75kW but not exceeding 375kW; and (viii) solar DC generators of an output exceeding 375kW.

Given the enormous renewable energy potential in Nigeria, and the urgent need to address the power deficit and mitigate risks associated with climate change (as evidenced by Nigeria being a signatory to the United Nations Framework Convention on Climate Change and committing itself to L’Accord de Paris to reduce greenhouse gas emissions), it is hoped that an improved fiscal regime for renewable energy will improve the usage and development of renewable energy in Nigeria.

It is particularly encouraging to note the inclusion of solar components as items exempt from VAT under the VAT Order. This is expected to go some way towards encouraging the importation of solar components and also lead to a commensurate decrease in the cost of renewable energy projects and stand-alone solutions. These projects and stand-alone solutions could potentially be a gamechanger for Nigeria’s electricity supply industry as more and more residential, commercial and even industrial users consider solar power solutions.

It is expected that the exemption of the abovementioned renewable energy equipment from VAT will facilitate growth in the sector. It is also hoped that the government will continue to take steps to move Nigeria's renewable energy sector forward through policies that encourage development of renewable energy projects (including manufacturing components locally), removing administrative bottlenecks and addressing liquidity challenges.

1. Cap V1 Laws of Federation of Nigeria, 2004.